Howdy traders! Confused about calculating your Trading Income Turnover and determining the Tax Audit Applicability? We’ve got you covered. Jump right in!
First, trading income turnover calculation should be done only when your income is considered as business income and not capital gains income. Second, you need to calculate the trading turnover of such income to determine your tax audit applicability.
Note: Tax liability does not depend on turnover
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Equity Intraday Trading
- You buy 10 shares of Nestle at INR 6,000 on 10/12/2019
-You sell them on the same day at INR 5,500
-Loss = (6000-5500) x 10 = INR -5,000
- You buy 15 shares of Kotak at INR 540 on 22/01/2019
-You sell them on the same day at INR 600
-Profit = (600-540) x 15 = INR 900
- Trading Turnover = Absolute Profit = (5,000 + 900) = INR 5,900
Equity Delivery Trading
- You buy 2 shares of Dabur at INR 6,800 on 28/03/2018
-You sell them on 31/03/2018 at INR 7,000
-Sales value = 7,000 x 2 = INR 14,000
-Profit = (7,000 – 6,800) x 2 = INR 400
- You buy 5 shares of Britannia at INR 480 on 28/03/2018
-You sell them on 31/03/2018 at INR 400
-Sales value = 400 x 5 = INR 2,000
-Loss = (480 – 400) x 5 = INR 400
- Trading Turnover = Sales Value = 14,000 + 2,000 = INR 16,000
Equity/Currency/Commodity Futures Trading
- You buy 75 units of Bank Nifty Futures at INR 10,000 on 17/01/2019
-You sell them on 12/01/2019 at INR 9,000
-Loss = (10,000 – 9,000) x 75 = INR 75,000
- You buy 40 units of Bank Nifty Futures on 05/04/2018 at INR 24,000
-You sell them on the same day at INR 24,010
-Profit = (24,010 – 24,000) x 40 = INR 400
- Trading Turnover = Absolute Profit = (75,000 + 400) = INR 75,400
Equity/Currency/Commodity Options Trading
- You buy 10 units of Bank Nifty Options at INR 10,000 on 17/01/2019
-You sell them on 12/01/2019 at INR 9,000
-Loss = (10,000 – 9,000) x 10 = INR 10,000
- You buy 5 units of Bank Nifty Options on 05/04/2018 at INR 24,000
-You sell them on the same day at INR 24,010
-Profit = (24,010 – 24,000) x 5 = INR 50
- Absolute Profit = (10,000 + 50) = INR 10,050
- Trading Turnover = Absolute Profit + Premium on Sale of Options
Important Pointers about Trading Income Turnover Calculation:
- Tradewise vs Scripwise: The taxpayers should report the trade-wise turnover and not scrip-wise turnover in ITR. However, if the broker report provides scripwise data, turnover is reported on a scrip-wise basis.
Tax Audit Applicability
Trading turnover is a major condition to determine tax-audit applicability.
There have been some major changes to the tax-audit rules in Budget 2020. The limit for turnover as per Section 44AB is increased from INR 1 cr. to INR 5 cr if – at least 95% of total payments and 95% of total receipts are digital in nature. For traders, all transactions are digital. Hence the limit of Tax Audit Applicability U/S 44AB will be INR 5 cr. And for taxpayers who do not satisfy the above condition, the limit of INR 1 Cr. remains unchanged.
The table below might help you understand the applicability rules in a jiffy.
| Up to F.Y. 2018-19 | ||
| Tax Audit IS APPLICABLE if: | Tax Audit is NOT APPLICABLE if: | |
| Up to INR 1 cr. Applicable U/S 44AAB(e) |
– Loss incurred, or Profit<6% of trading turnover and total income is more than the basic exemption limit | – Profit>=6% of trading turnover |
| 1 cr. to 2 cr. Applicable U/S 44AAB(a) |
– Loss incurred, or Profit<6% of trading turnover and total income is more than the basic exemption limit – Profit>=6% of trading turnover and NOT opted for presumptive taxation scheme U/S 44AD |
– Profit>=6% of trading turnover and opted for presumptive taxation scheme U/S 44AD |
| Above 2 cr. | Always applicable | |
| F.Y. 2019-20 Onwards | ||
| Tax Audit IS APPLICABLE if: | Tax Audit is NOT APPLICABLE if: | |
| Up to INR 2 cr. Applicable U/S 44AAB(e) |
– Loss incurred, or Profit<6% of trading turnover and total income is more than the basic exemption limit | – Profit>=6% of trading turnover |
| 2 cr. to 5 cr. Applicable U/S 44AAB(a) |
NOT APPLICABLE irrespective of profit or loss (loophole in the provision*) |
|
| Above 5 cr. | Always applicable | |
*Under Budget 2020, the turnover limit under Sec 44AB has been increased from Rs. 1 Cr to Rs. 5 Cr. However, the turnover limit under Sec 44AD has not been changed. When the Trading Turnover is between Rs. 2 Cr and Rs. 5 Cr, neither Sec 44AB is applicable nor Sec 44AD. Thus, Tax Audit is not applicable irrespective of profit or loss. The Income Tax Department is expected to make an amendment in the turnover limit of Sec 44AD to resolve this loophole. However, there is no clarification from the Income Tax Department yet.
Here’s what traders like you have asked us. Shoot your queries in this Tax QnA.
